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of Part 2 of Division 1 (hereafter, Chapter 9) of the Insurance Code, doesnot regulate attorneys-in-fact, which are authorized by Chapter 3 of thatpart of the Insurance Code.Neither Walker nor the “filed rate doctrine” can apply to immunizethe actions of a company that does not file rates.Second, plaintiff’s lawsuit does not challenge an insurance rate.(See Discussion, Section I-B.) Walker barred a challenge to insurance ratesregulated by the Insurance Commissioner pursuant to Proposition 103.Fogel does not challenge as excessive any insurance rate or allege anyviolation of Proposition 103. Rather, Fogel challenges the AIF Feeimposed pursuant to a written contract – the Subscription Agreement –between the subscriber and FGI.The AIF Fee is not a rate. FGI’s authority to levy the AIF Feecomes neither from the Department of Insurance, nor from the provisions ofthe Insurance Code that govern the regulation of rates (sections 1861.05 1861.09, enacted by Proposition 103), but from a contract between FGI andsubscribers. The obligations that govern the subscriber and the attorney-infact are regulated by the terms of that agreement, not Proposition 103.Nor does Proposition 103 authorize the Commissioner to regulatethe specific expenditures of an insurance company. The regulationsimplementing section 1861.05 only specify what portion of an insurer’soverall expenses may be passed through to policyholders. (Cal. CodeRegs., tit. 10, § 2644.1 et seq.)If the ruling of the court below was correct, and approval of aninsurer’s rates immunized an insurer from any challenge to itsexpenditures, then even a slip-and-fall case would be barred, since thedamages would arguably be recognized as costs in the insurer’s rates.Third, even if the AIFs were considered insurance companies, andthe AIF Fee considered a “rate,” Walker does not apply because the AIF3

Fee was not disclosed to or approved by the Commissioner. (SeeDiscussion, Section I-C.) The Commissioner’s approval was the predicatefor the immunity Walker discerned (incorrectly) in the statutes. The recordhere affirmatively establishes that the Exchanges did not disclose, and theCommissioner did not approve, the AIF Fee.Nor is there anything in the record that suggests that theCommissioner received, much less reviewed, the management servicesagreement between FGI and the Exchanges that presumably specifies whatservices are provided to the Exchanges by FGI. In fact, amendments tosection 1215.5(b)(4), sponsored by Farmers Insurance Group after thepassage of Proposition 103, purport to relieve the Exchanges of theirobligation to submit certain of their management agreements to theCommissioner. The applicability of that statute to FGI’s currentmanagement agreements, and its interaction with the overriding disclosureand regulatory requirements of Proposition 103, cannot be determined here,because neither party raised this statute in this proceeding. But theamendments suggest that the company believes the Commissioner cannotregulate some of agreements between FGI and the Exchanges.While FTCR believes that this is a fiduciary duty case, not aninsurance rate case, the absence of the Exchanges deprived the lower courtof the information needed to ascertain that distinction. Indeed, if the courtbelow believed this to be an insurance rate case, the proper procedure, asdictated by the California Supreme Court in Farmers Insurance Exchangev. Superior Court (1992) 2 Cal.4th 377 (Farmers), would have been to staythe trial court proceedings and request that the Commissioner weigh in –not dismiss the case as barred.In the event that the Court concludes that this is an insurance ratecase and proceeds to address the statutory issue of whether insurancecompanies are immune from this suit by virtue of sections 1860.1 and4

1860.2, as Walker held, this brief also demonstrates that the trial court erredon that ground.The argument made by FGI and accepted by the court below – thatsuits under the Unfair Competition Law (UCL) challenging violations ofProposition 103 are prohibited by those statutes – has been repeatedlypresented by insurers to California courts in recent years. Each time,beginning with this Court’s decision in Donabedian, supra, 116 Cal.App.4th 968, the courts have rejected the argument, with one exception: Walker.Walker was decided incorrectly, and its statutory analysis cannot besquared with the Supreme Court’s subsequent decision in StateCompensation Insurance Fund v. Superior Court (2001) 24 Cal.4th 930(SCIF) and the far better reasoned authority of Donabedian, whichcorrectly construed the statutes.As explained in the Background section, Proposition 103, enacted bythe voters in 1988, eliminated the “exclusive jurisdiction” of the InsuranceCommissioner over insurance rates, premiums and practices; consumers areexplicitly authorized by Proposition 103 to bring an Unfair CompetitionLaw action against insurance companies in court for violations of Chapter 9(of Part 2 of Division 1 of the Insurance Code) by section 1861.10(a).(Farmers, supra, 2 Cal.4th 377; Donabedian, supra, 116 Cal.App.4th 968;see also Farmers/Safeco, supra, 137 Cal.App.4th 842, 853, fn. 8.) Thus, inthe context of Proposition 103, the vestigial provisions of the 1947 law nolonger operate to confer immunity from a UCL suit upon insurancecompanies. (Donabedian, supra, 116 Cal.App.4th 968 at 990-991; SCIF,supra, 24 Cal.4th at 938-940.) (See Discussion, Section III.)Further, the private right of action authorized by section 1861.10(a)of Proposition 103 is unconditional. There is no statutory basis upon whichto impose a “filed rate doctrine” upon Proposition 103. Such a doctrine isinconsistent with the language and purposes of Proposition 103, the5

Supreme Court’s decision in Farmers, and Donabedian. (See Discussion,Section IV.) This case does not allege a violation of any provision ofProposition 103, but if Proposition 103’s provisions were implicated,Proposition 103 explicitly authorizes this UCL suit.Walker’s construction of the relevant statutes and its reasoning aremanifestly incorrect, have been discredited by the California SupremeCourt and Donabedian, and this Court should reject its analysis.***Three times in the last three years, insurance company defendantsand insurance companies appearing as amici have asked the Second DistrictCourt of Appeal to judicially restore the era of “exclusive jurisdiction” andimmunity from suit that the voters swept away when they enactedProposition 103.3 Each time, the insurance companies have been rebuffed.Consumer advocacy groups like FTCR and the Insurance Commissionerhave demonstrated to the courts that the plain language, legislative historyand judicial construction of the relevant statutes establish the right to bringa UCL lawsuit against an insurer for violations of Proposition 103.43In addition to Donabedian, supra, 116 Cal.App.4th 968, the issue waslitigated in Poirer v. State Farm Mutual Automobile Insurance Co.(B165389) 2004 WL 2325837, and most recently in Farmers/Safeco, supra,137 Cal.App.4th 842.4FTCR filed extensive amicus briefs in Donabedian and Poirer (whichmay be found at 2003 WL 23209749 and 2004 WL 1284440 respectively)and was a party in Farmers/Safeco (the Plaintiff in the Safeco case, theProposition 103 Enforcement Project, is a project of FTCR). The InsuranceCommissioner filed amicus briefs in all three proceedings; his amicus briefin Donabedian is attached as Exh. A to FTCR’s Motion for Judicial Notice(MJN) (available at 2003 WL 23280980); his Poirer brief may be found at2004 WL 1284440.6

In this, the fourth time the argument has been presented to thisCourt, the insurer seeks to extend the Walker bar to a company that is not aregulated insurance company, and to a fee that is not a rate. Regardless ofFGI’s status, should the argument prevail here, the consequences will bedisastrous for consumers and the regulatory process, as the InsuranceCommissioner himself has repeatedly emphasized in briefs addressing thisvery issue.A ruling accepting and applying Walker’s reasoning would conflictwith this Court’s decision in Donabedian and jeopardize the right that thevoters reserved to themselves to prevent violations of the Insurance Code,to remedy such violations through civil actions, and to obtain refunds ofmoney improperly collected by insurers. Finally, such a ruling would placeFGI beyond the rule of law, neither regulated by the Commissioner noraccountable in the courts for breach of contract and fiduciary duties.The court below erred, and this Court should reverse the trial court’sruling.BACKGROUNDThis section will briefly review the unique relationships created by areciprocal insurance arrangement. It will then proceed to discuss thebackground needed to assess the statutory immunity issue, should the Courtreach it.A.Structure of the Relationships Between Policyholders,Subscribers, and FGI and the Exchanges; the AIF Fee.The entities that to the public appear as “Farmers Insurance” areseparate and distinct entities. The Exchanges – Farmers InsuranceExchange, Fire Insurance Exchange, and Truck Insurance Exchange – areinsurance companies, and serve as the vehicle through which insureds coinsure each other in a “reciprocal” arrangement. (Section 1303.) TheExchanges perform the principal function of insurance as it is defined by7

section 22: “shifting one party’s risk of loss to another party anddistributing that risk among similarly situated persons.” (Wayne v. Staples(2006) 135 Cal.App.4th 466, 475-476.)Plaintiff Fogel initially sued the Exchanges. However, theExchanges were dropped in the First Amended Complaint to avoid theimplications of Walker (rather than challenge its application and flawedreasoning). (Appellant Benjamin Fogel’s Op. Brf. (AOB) at 9.)The AIFs – Farmers Group, Inc. (dba Farmers UnderwritingAssociation), Fire Underwriters Association and Truck UnderwritersAssociation – execute the insurance contracts on behalf of the policyholderpursuant to a power of attorney, and are separate entities. (Section 1305.)The AIFs here are subsidiaries of FGI. (7 JA 1917.)Consumers have differing legal relationships with these separateentities, reflecting the unique nature of reciprocal insurance.Policyholders pay premiums to the Exchanges, and submit claims (7JA 1878) to the Exchanges. State law regulates the relationship betweeninsurance policyholders and insurance companies in manifold ways. Asdiscussed in greater detail below, the provisions of the Insurance Code thatregulate the rates, premiums and certain practices of property-casualtyinsurers, including automobile insurers, are contained principally in Article10 of Chapter 9 of Part 2 of Division 1 of the Insurance Code. Chapter 9was enacted by the Legislature in 1947 as the McBride-Grunsky RegulatoryAct of 1947, and Article 10 was enacted in 1988 by the electorate asProposition 103. Common law doctrines also regulate the relationshipbetween policyholders and the Exchanges. (See, e.g., Moradi-Shalal v.Fireman’s Fund Insurance Cos. (1988) 46 Cal.3d 287 [liability in tort forbad faith].)The consumer’s relationship with the AIFs, such as FGI, is distinctfrom the policyholder relationship with the insurers. The policyholder is8

considered a “subscriber.” (Sections 1300-1301.) The subscriber executesa “subscription agreement” appointing the attorney in fact. (Section 1305.)The AIF then becomes a fiduciary to the subscriber. (Tran v. FarmersGroup, Inc. (2002) 104 Cal.App.4th 1202.) Pursuant to that agreement, thesubscriber agrees to pay a fee to the AIF for its

Case No. B182156 IN THE COURT OF APPEAL FOR THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR BENJAMIN J. FOGEL, ET AL., Plaintiff and Appellant; v. FARMERS GROUP, INC., D/B/A FARMERS UNDERWRITERS ASSOCIATION, FIRE UNDERWRITERS ASSOCIATION, TRUCK UNDERWRITERS ASSOCIATION, Defendants, Respondents, and Cross Appellants.